Most companies recognize that pricing is a crucial lever for their business, with many dedicating entire teams to the function.
However, my experience tells me that these teams often struggle to make noteworthy progress and elevate pricing performance to new heights. Industry pundits typically mention that as much as 75% of pricing initiatives will fail.
Having created and led pricing teams at three different multinationals and coached numerous pricing experts, I know firsthand how easy it is to get sucked into the “transactional vortex.” The day-to-day pricing activities can be so fast and furious that finding time to improve processes, metrics, and systems becomes daunting. As a result, pricing initiatives often end up stalling.
But beyond just being “busy” there are other drivers that can sabotage your pricing roadmap. Here are the main ones I have often encountered, with some suggestions on how to tackle them:
1. Complexity
Pricing typically has many tentacles across the business, making it difficult to implement changes while avoiding unintended consequences. This challenge is even more daunting in businesses with high transactional velocities, outdated ERP systems, and poor data quality. To address this, review the scope of your initiatives carefully and ensure scope creep does not sabotage your progress: try to “bite-size” a larger initiative into smaller (and less risky) workstreams. Also consider executing “enabler” projects that will be vital for the success of the main pricing initiative, for example by cleansing data or implementing key system requirements.
2. Resource Constraints
Your pricing team may be overwhelmed by day-to-day tasks, leaving little time for strategic initiatives. This is often an excellent opportunity to bring in external expertise, such as a pricing consultant. While this comes at a cost, the faster and more successful implementation of your initiatives can outweigh the expense. If that is not an option, look at dialing back certain processes, to free up time. For example, many teams spend an inordinate amount of time on internal reporting, which may be an area to rationalize.
3. Sensitivity
Pricing changes can test customer loyalty. If customers have better and cheaper alternatives, there is a higher risk of losing sales. This fear can create a stalemate among various stakeholders. To mitigate this, conduct thorough research before making price changes. Solid customer and product segmentation, along with rigorous market testing using pilot and control groups, is essential.
4. Lack of Expertise
Sometimes, the organization is committed to making a change but lacks clarity on how to execute it. There may be gaps in analytics capabilities (e.g., not evolving the skills and technology tools to keep up with the data), understanding how systems are interrelated, or how a price change may impact external and internal stakeholders. It is likely that other companies have already navigated the same questions, so seeking external advice in such situations can prevent unnecessary rework and costly mistakes.
5. Uncharted Territory
New circumstances can necessitate entirely new processes or systems. For example, during the 2019 trade war with China, manufacturers had to figure out how to pass on additional costs from trade tariffs. Similarly, if your organization prices based on material goods and now needs to price services, it can be a daunting task.
In these instances, external help can accelerate the resolution of your challenges and lead to better results. I often see companies struggling to figure out a certain problem, not realizing that other industries already have mature processes for that specific issue, enabling easy cross-pollination, if you know where to look.
6. Regulatory Constraints
Local legislation may prevent certain price changes, depending on your industry or country. Engaging the appropriate experts is crucial, as errors can result in significant penalties.
Hopefully, this list will help you diagnose what is preventing your organization from expediting key pricing initiatives. If you need additional help, please reach out.
